Fresh debate on crude oil price

PETALING JAYA: The spike up in crude oil prices to a high of US$80.36 per barrel last week has sparked fresh debate on the forward trend of crude oil prices.
Will the fossil energy price hit US$100 per barrel or retreat from the peak in the near future amid the patchy global economic picture?
Goldman Sachs Group Inc yesterday raised its year-end oil price forecast to US$85 per barrel from US$72 previously and it warned of a “high risk” of a jump above the US$90 level.
The financial group said the Organisation of Petroleum Exporting Countries (Opec) pledge to increase production in November was “too late, too little.”
Lord Ron Oxburgh, former chairman of Shell, had forecast that the price of oil could hit US$150 per barrel with oil production peaking within the next 20 years.
Presently chairman of biodiesel firm D1 Oil, he said the oil giants should invest in alternative energy as the supply of fossil energy was depleting. Opec, which accounts for 40% of the global oil supply, announced the cartel would bump up its production by 500,000 barrels per day starting in November.
Analysts doubt that the additional 500,000 barrels a day would be enough to reverse the surging crude oil prices, which have soared nearly 30% so far this year.
Yesterday, oil prices retreated from the US$80 level to US$78.59 per barrel at the press time.
High crude oil prices is indeed good news for Malaysia, a net oil exporter, given that the government revenue would rise in tandem with the spiralling fuel price.
The Federal Government expects its revenue to increase nearly 15% to RM141.8bil this year or 22.7% of the country's gross domestic products (GDP).
About 38% of the total government revenue comes from oil earnings.
Petroleum income tax is anticipated to hit RM22.6bil this year. Also, the RM24bil dividend income from Petronas contributes a large bulk of non-tax revenue.
Furthermore, the rising fuel prices also augur well for the country's plantation industry since palm oil is one of the feedstock for bio-diesel production.
The higher the fossil energy prices, the more economically viable to produce bio-diesel.
On the flip side, the Government will have to bear heavier burden to subsidise consumer fuel prices in the country.
Last week, Prime Minister Datuk Seri Abdullah Badawi assured the public that there would not be any hike in petrol prices this year.
The possibility of an increase in petrol pump price remains should crude oil price continues to climb.
Not just petrol, but for gas as well.
Energy, Water and Communications Minister Datuk Seri Lim Keng Yaik said yesterday the Cabinet committee would decide next Monday on the country's next gas policy and gas prices charged to Tenaga Nasional Bhd.
Lim noted that Petronas was forced to import the fuel because its gas fields in Terengganu could not meet the demand in the peninsula.
The national oil giant paid RM14bil in subsidy last year, for the imported gas it sold to the local consumers.
Crude oil prices had more than doubled since 2004 to fuel the global economic growth.
However, the recent spate of negative news, including the ripple effect from the credit crunch in the US resulting from rising defaults in subprime housing loans and the Japanese economy's failure to come out of its decade-long recession, has pointed to a deceleration trend in the world economy.
Fuel consumption would be lesser, consequently crude oil prices are expected to ease, instead of surging further.
Opec chief Abdalla Salem El-Badri said on Friday that the current oil price of US$80 did not reflect the fundamentals and was unlikely to last long.
“I don't think US$80 (per barrel) will last,” he told journalists at the Vienna headquarters of Opec. “The fundamentals do not support the price.”
Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose said he was not too concerned about high oil prices because Malaysia was the beneficiary of it.
“My worry is that the Malaysian government is heavily dependent on revenue generated by such high crude oil prices,” he noted.
Gerald anticipated that crude oil prices would drop as a result of a slowdown in the world economy.
“When that happens (crude oil prices falling below the US$70 level), it would be a challenging task for the Malaysian government to trim its budget deficit to 3.1% of GDP next year, from 3.2% this year,” Gerald commented.
The Government has forecast crude oil prices to be at about US$75 per barrel next year.